The spike in the company’s
share price was reportedly a direct response to an announcement
by China Northern Rare Earth Hi-Tech Co., the
world’s largest rare earths producer, that it
would hike its prices in a
move some have speculated may represent a turning point for the
Rare earths prices have been weighted down
for some time, with the industry saturated by volumes of
material produced in China, much of it illegal.
But China Northern’s price
increase coupled with the market’s vote of
confidence in Lynas are indicators to some that this may soon
"My feeling is this is a turning point," Damien Krebs,
metallurgy manager with Greenland Minerals and Energy Ltd,
"[China Northern] have said 'we’re not
selling at these prices any more’ (...) and a
lot of Chinese companies follow [their lead]," he added,
noting that with an output of 50,000 tpa in a global market
of roughly 135,000 tpa, any move China Northern makes is
bound to have a significant impact on the market.
For now the focus of the increases has
been on light rare earths, but heavy rare earths could follow
suit, Krebs said.
With the Chinese economy stable and
demand for magnets in technology rising, Krebs believes the
rare earth market is well poised for a recovery.
He pointed to price increases in battery
minerals such as lithium and cobalt as another argument in
favour of a rare earths turnaround. "Look at rare earths and
think. The arguments for [lithium and cobalt] are consistent
with the arguments for rare earths," he said.
Respite for Lynas
A Lynas spokesperson told
IM the company "welcomes any improvements in
She noted the increases in published
prices for rare earth products within China of "up to 6%" but
added that Lynas is yet to see the effect of these on its own
rare earths prices.
"As indicated in previous advice to the
market, given the achievements to date on production and
costs, Lynas is heavily leveraged to any improvements in
market price," she said.
"[The Lynas share price increase] is all
to do with that price increase in NdPr
[neodymium-praseodymium]," Rob Brierly, an analyst with
Patersons Securities Ltd, told IM.
"Until now, low [rare earth oxide]
prices have crimped share price performance and the
announcement from China Northern is the first sign of
meaningful price improvement for some time," he added.
The China question
With the market relying on China for
around 95% of rare earths produced globally all eyes are on
the Asian nation for future developments.
Any restriction on exports imposed by
China could send prices soaring, for example. And it has been
speculated that this is one weapon in the
country’s arsenal should a trade war break out
with the US under the Trump administration.
Were China to restrict rare earths
exports to the US, it could wreak havoc. The US has no
production of its own since the mothballing of
Molycorp’s Mountain Pass facility in 2015,
having been driven under by the low price dynamic.
There is precedent for such a move too.
In 2010, China suspended rare earth exports to Japan amid a
territorial dispute in the East China Sea.
But even without a trade war, with
China's position as the world's largest supplier, any
fluctuation in the country’s output can have
strong effects on the industry.
The Chinese government has expended a
lot of effort trying to clamp down on illegal rare
earths mining within the country. Companies flouting
strict government quotas has resulted in more material being
dumped on an already saturated market.
Ongoing government inspections can now
lead to production being cut off and quotas deducted if a
company’s sales and output numbers do not
correspond, or if a company exceeds its production quota. If
a company is found to be illegally mining material, it can be
added to a black list, affecting its ability to secure
The clampdown has seen the Chinese media
encouraged to expose any illegal activities, with individuals
promised rewards if they expose illegal activity.
It is unclear how effective the
government’s efforts will be. But if it can
successfully regulate supply, it bodes well for prices
Krebs describes the supply situation in
China as "the random element" in the rare earths
"It really boils down to China
(…) If supply [can be held] fixed and flat, and demand
rises, price will have to go up," he said.